YOUR MONEY: BANK ON EQUITIES TO RETIRE EARLY

By Sanjeev Anand

Professionals now have  their sights set on achieving financial independence and freedom much earlier by the age of 40. However, retiring at 40 also leaves one 20 years shorter of a regular income, besides the added burden of retirement through these years until your farewell day.

Extrapolate that with the inadequate amount saved for retirement, and it may unnerve the strongest of us. So, the extended time horizon necessitates a longer dedicated saving and investment period to accumulate the desired corpus. Without maintaining discipline in these practices, little will be achieved if one wants financial stability throughout the extended retirement period.

The power of equities

If you strategically allocate a portion of your portfolio to equities, you can benefit from the potential for higher long-term returns compared to traditional investment options. Do not forget the compounded returns, where reinvested earnings generate additional income, ultimately building a substantial retirement corpus. A mistake many make when arriving at a corpus figure for their retirement fund is not considering inflation. Equities can prepare you against it with their hedging power as they show resilience against inflation,  ensuring long-term wealth appreciation.

India’s economic landscape makes a stronger case for equities for early retirement by solidifying their inherent benefits. The young and growing working-age population creates a conducive environment for businesses to thrive and drive economic growth. Equity investors can, therefore, capitalise on this growth.

Set goals, calculate needs

Defining desired retirement lifestyle and estimating expenses using financial tools will help you determine the target corpus for financial independence. One of these is the 4% William Bengen withdrawal strategy that suggests one can safely withdraw 4% of their initial savings in the first year of retirement and adjust that amount for inflation each subsequent year. This will allow the retirement corpus to last for 30 years. However, it’s a guideline and not a surefire formula.

Risk management

Create a diversified portfolio of equities across different sectors and geographical regions, including individual stocks, mutual funds and ETFs, picking them based on one’s risk tolerance and investment goals. Diversification, stop-loss orders, and regular rebalancing are crucial to mitigate risk. Allocate your assets strategically, considering your age, risk tolerance, and investment horizon. Maintaining a consistent investment plan and resisting impulsive decisions are key to success. Consider seeking professional guidance from certified financial advisors or wealth managers for personalised investment strategies and financial planning.

Any strategy you adopt, thorough research, meticulous planning, and responsible risk management are the cornerstones of successful early retirement planning.

(The author is whole-time director at Equentis Wealth Advisory. Views expressed are personal opinions.)

2024-08-24T00:17:32Z